Capital structure theory
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Enthusiasm for sophisticated analysis spread to other decision-making issues such as cash, inventory management and other important day-to-day decisions affecting the short- and long-term well-being of the firm. Capital structure theory, the study of the relative importance of debt and equity in influencing the firm's value, also began to receive analytical investigation.
J.B. Clark (1899) had a fundis view of capital, such that there was no time delay in production and that time only enters consideration when there is new capital investment. Capital is a fund of value: -Investment is a flow variable -Capital is a stock variable
S.H. Frankel refutes Clark on the basis of capital being heterogeneous, time being important, and that legal institutions help discover the value of Mal-invested capital (i.e. mistakes happen...recessions happen).
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